Personal budgets place the duty of identifying and buying care on the holder. But many found the process of purchasing care difficult: only 50-58% of users found it easy or very easy to get service information.

Although local authorities have made efficiency improvements by implementing them, the proportion of budget holders offered support by their local authority in planning their care varied widely, from 38% to 85%.

The oversight and monitoring of the social care provider market must improved if they are to provide effective care and good value for money when rolled out to all eligible users by 2013, it concluded.

Local authorities are responsible for people who self-fund if they run out of money, but 60% do not know how many ‘self-funders’ are in their area.

The report estimated that supporting self-funders who had run out of money may cost the taxpayer £1 billion per year by 2035.

More should be done to protect people if a provider faces financial trouble, it said.

'The recent financial problems faced by Southern Cross illustrate the need for government to develop a system to address serious provider failure,' it said.

Amyas Morse, head of the National Audit Office, said: ‘As the population ages and more pressure is put on social care, the department must ensure that its oversight of the care market is robust, that people have access to the information and support that they need and that it has arrangements in place in the event of large providers getting into financial difficulty.’

The NAO recommended that the DoH should identify where market monitoring is insufficient, and whether more central oversight is necessary.